Education and the Baumol Cost Disease

Matt Yglesias is right to point to what he calls the “Baumol effect” (which I was taught to call the “Baumol cost disease”) as the central problem in educational finance. But I think he’s wrong to say that our only options are lower relative teacher salaries, larger class sizes, or higher school taxes.

The crucial missing assumption is that education must remain in what Baumol calls the “non-progressive sector.” The way out of the box is a change in the basic technology of teaching.

Baumol’s model, laid out in his classic “Macroeconomics of Unbalanced Growth,” is straightforward. If one part of the economy – widget-making – enjoys productivity growth, and another part – live chamber music – doesn’t, then the non-progressive sector faces a progressive cost squeeze. The price of chamber-music tickets in terms of widgets has to go up, or the pay of chamber musicians relative to widget-makers has to go down.

As long as teaching is stuck in the one-teacher-one-blackboard-thirty-students model, then education is a classic Baumol enterprise. That’s why we’re spending several times as many real dollars per pupil as we did in 1970, and getting by many standards worse results.

And that, in turn, is why the discussions about “educational technology” always seem so bizarre to me. It’s as if vaudeville promoters in 1920 were discussing whether they should start using loudspeakers or disco balls, rather than understanding that radio and the movies were making their whole business model obsolete.

The future of education is for students to educate themselves, individually and in groups, with the help of computers, networks of computers, recorded media (including, of course, the greatest educational innovation of all, the printed book), and the skilled facilitation of a relatively small number of live helpers. If you think it’s impossible to get masses of young people to spend astounding numbers of hours on cognitively-demanding tasks, then how do you explain the success of the video-game industry?

No, I don’t think this will be easy, or that there won’t be real losses. (A movie isn’t a perfect substitute for a stage play, and even a great CD isn’t the same as a live performance.) But there’s no option, so let’s stop complaining about the future and start inventing it.

And yes, that means universities, too. How many people, right now, are preparing to give a lecture tomorrow in introductory economics or organic chemistry? And how many of those lectures have more educational value than would a video of the best such lecture being given tomorrow? Or, better yet, a professionally-produced lecture on DVD, with hot-links to relevant materials?

The problem is that (some of ) the universities also produce new knowledge. Right now, the teaching business cross-subsidizes the research activity.

We’re going to need a new financing model for the knowledge-production part of the university’s mission. But we can’t keep operating the universities as technologically backward enterprises, just to maintain teaching jobs as an excuse for supporting scholars.